An Intimate Understanding Of Real Needs
Relationship Marketing is concerned with creating affinity and building loyalty. It pre-supposes an intimate understanding of real needs and relies for its success upon mutual respect to the extent that each party knows exactly what it gets from the other. It is really about treating customers as valued individuals, but is sometimes difficult especially for large, complex organisations where systems don’t talk to each other.
Of course, it is also to do with the nuts and bolts of marketing such as advertising and promotion, market positioning and sales techniques, all targeted precisely at the individual. But personalised service and carefully targeted communications is the larger part of what relationship marketing means. It is, if you like, a throwback to an age when personal service and individual attention was the norm. In that sense, marketing has come full circle and now seeks to use technology to facilitate real one-to-one relationships, but on a large scale.
The Hidden Cost Of Loyalty
At last, the message seems to be getting through that it costs much more to attract a new customer than it does to keep an existing customer - 10 times as much is a popular estimate in financial circles.
The reluctance of the business community to accept this 'fact' and act upon it is not entirely surprising. Much marketing practice has centred on the seductive art of attracting new customers rather than the more prosaic science of retaining existing ones.
The emphasis has been on transactions rather than relationships. However, recent studies show that profitability can be improved significantly by reducing customer defections by a relatively small percentage.
Small Improvements = Big Gains
Birmingham Midshires has quoted the research that they commissioned which showed that, if they could increase customer retention from 70% to 80%, profits would double; if it is improved from 80% to 90% profits would double again.
Relationship marketing is in essence the creation of strong customer loyalty, at the heart of which lie trust (that the company will deal honestly and fairly) and satisfaction (that reasonable expectations will be met or exceeded).
The goal is to deliver high levels of customer satisfaction which acts as a barrier to defection.
The Lifetime Value Of A Customer
The payoff for success lies in the concept of lifetime value of the customer, with revenues exceeding costs over time, not just in one transaction.
Considering customers in this way may lead to a major rethink about what is important for the long-term good of the business. It may also require a company to reconsider its structure to facilitate customer relationships and recast accounts and budgets to provide customer relevant information.
When you have relatively few customers they are all important and this concentrates the mind wonderfully on the need to keep them happier than they would be with alternative suppliers.
Thus in the business-to-business arena, a strong culture of relationship marketing grew up in such firms based upon building long-term loyalty via a package of activities designed to get supplier and customer so close that the actual disadvantages of switching supplier clearly outweigh the potential advantages.
Cement Their Loyalty
A number of ways exist to introduce benefits to customers which will help to cement loyalty. Several stand out:
- Adding financial benefits to the relationship such as loyalty discounts. These however are relatively easy for competitors to replicate;
- Adding social benefits which aim to improve personal contact perhaps through Facebook, Twitter or other social networking phenomena;
- Adding personalised services or communications which show an understanding of their needs;
- Adding structural ties such as supplying special equipment or direct computer links to tie in customers, make it easier to use your services and ensure first choice selection, for instance text messaging could be very effective here.
Use Technology Innovatively
The most successful relationship marketing strategies in the business-to-business sector have encompassed all three, with the rapid growth of information technology fuelling opportunities for the third.
Exploiting the power of IT has generated new opportunities in consumer marketing. The availability of cheap, powerful computers, the appropriate software and the huge growth of mobile phones and access to the internet through computers in the home, has allowed new operators to pioneer the introduction of convenient, inexpensive, user friendly and apparently personalised, services delivered straight into the home.
Here the power of technology is being harnessed to facilitate an individualised response to what has been generally regarded as a mass market.
Customer loyalty is a prize to be sought, however it is often believed that where a product or service has a mass or widespread customer universe there is little that can be done to promote loyalty since it would be impossible to personalise an appeal to a disparate audience. Or at least much too costly.
Consistent with this belief has often been the misplaced notion that customer loyalty means the ability to screw as much business as possible out of the customer via cheap and cheerful incentives without delivering real improvements in value and satisfaction.
The Heart Of The Relationship
At the heart of relationship marketing lies a fundamental commitment to understanding as much as possible about what customers value, or don't, so that they can be offered a rounded package of relevant loyalty benefits.
This involves a considerable investment in knowledge building about customer characteristics and views as the necessary pre-cursor to action. Customer data, often expensively acquired, needs to be "warehoused" and "mined" to extract full value from it.
To do this effectively requires a combination of marketing skills and experience together with a thorough knowledge of database research and information systems development plus a good understanding of statistics. A combination rarely found.
It also implies a long-term commitment to the relationship without expectation of benefits to the company this month or even this year.
Testing can be the key to success.
Existing customers can provide a low cost, low risk test bed for your ideas.
Find out what channels that the customer enjoys using.
Don't Waste Money
So, what will ensure that an investment in relationship building will work, given that such an investment may well be at the expense of other marketing initiatives?
In our view there are some important steps to increasing the probability of success:
- Appoint an experienced senior manager with understanding and knowledge of customers to head the relationship marketing programme.
- Use the information you already have lying about in research reports and customer files - use it, use it and use it again. Use it to:
- identify key customers - those who you believe are of greatest long-term value;
- find out what they like or dislike about current products and services;
- provide a low cost, low risk test bed for your ideas;
- determine who you can target individually.
- Prepare long and short-term plans for customer retention and developing customer relationships. Identify the likely investment required and the expected returns.
- Get acceptance that this has to be judged as a long-term investment.
- Work out how you can exceed customer expectations to deliver the greatest benefit to them at least cost to you. After all, if you don't some other company will.
Although relationship marketing needs a long-term perspective, it can have short-term benefits in helping us understand which 50% of our marketing budget we are wasting.
By introducing customer specific monitoring and measuring tools, including internet website click-thru analysis and text messaging response rates, should help to reduce spending levels or to be more certain of using the money effectively.
Simple Common Sense
In the end relationship marketing comes down to simple common sense, treating customers as we would like to be treated ourselves. But as we know, common sense is not all that common and the simplest things are often the hardest to do.
Telephone 01733 246474 for more information